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Wed, 8 July 2020

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Treasury ‘considering tax rises and public sector wage freezes’ to pay £300bn coronavirus bill, leaked document shows

Treasury ‘considering tax rises and public sector wage freezes’ to pay £300bn coronavirus bill, leaked document shows

Labour is demanding that Rishi Sunak and Boris Johnson make a statement rejecting the plans.

3 min read

Rishi Sunak could be forced to hike income tax, end the pensions triple lock and freeze public sector pay to try to meet the multi-billion pound cost of the coronavirus crisis, according to a leaked document.

A proposed Treasury “policy package” drawn up for the Chancellor - and obtained by The Telegraph - says the drastic measures may have to be signalled within weeks to “enhance credibility and boost investor confidence” in the UK economy.

Labour called on both Mr Sunak and Boris Johnson to make a statement “rejecting these plans”.

According to the news title, The Treasury’s base case scenario for the year now forecasts that Britain will end it with a £337 billion budget deficit - a sharp rise on the £55bn forecast in the March budget.

And its worst-case scenario suggests that figure could soar to £516bn in the current financial year. 

The best outcome mapped by the Treasury still sees the UK facing an eye-watering £209bn deficit.

Mr Sunak is reportedly warned that he will have to increase taxes or cut spending to find £25bn-£30bn to “stabilise debts” and stave off a sovereign debt crisis under the Treasury’s base case - a figure that could rise to £90bn a year if the worst outcome takes hold.

And the document tells Mr Sunak he may have to break a key Conservative manifesto pledge not to raise taxes or do away with the long-standing ‘triple lock’ on state pension rises in order to shore up investor confidence.

"To fill a gap this size [in the public finances] through tax revenue risers would be very challenging without breaking the tax lock,” it warns. 

“To raise fiscally significant amounts, we would either have to increase rates/thresholds in one of the broad-based taxes (IT, NICS, VAT, CT) or reform one of the biggest tax reliefs (eg pensions tax)."


Further options laid out for Mr Sunak reportedly include a two-year freeze on public sector pay - a move the document says could raise £6.5 billion by 2023-24 - and tax hikes, including a 1% increase in income tax and “new carbon/green taxes”.

But he is warned that the "timing, pace and composition of any consolidation should be managed carefully to avoid the risk of stifling the economic recovery".

The bleak new figures came as the Chancellor unveiled the latest extension to its furloughing scheme, a wage guarantee that officials believe has already cost £10bn in its first few weeks of operation. 

A Treasury spokesperson said: "The Government's focus is on supporting families and businesses through this difficult period. That's why we announced an extension to the furlough scheme, which has already saved millions of jobs, earlier."

But Labour’s Shadow Chancellor Anneliese Dodds demanded a public rejection of the plans by the Chancellor and Prime Minister.

She said: “A lack of resilience in our public services, caused by ten years of underfunding, has made it harder to deal with the challenge of coronavirus. 

"After all our public services and key workers have done to save lives during this pandemic, there must be no return to a society where we lack that resilience.

"Both the Chancellor and the Prime Minister must urgently make a statement rejecting these plans.”


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